Tuesday, February 09, 2010

Why Getting Slowly Lite Also With Defensives In Risky Assets?

Well, some "defensives" may be not so defensive in these days. First of all, think about the companies that are "easier to tax". Secondly, there are some market issues of which the analysts at Barclays Capital had a nice summary in relation to European affairs last week:

Signs of stress across asset classes: Concern over budget deficits could affect not only European bond yields, but also the euro (trade-weighted euro -5% since late October 2009) and equities (Euro STOXX 50 -6% since 11 January 2010).

Reduce Banks, Telecoms, Utilities: We see the greatest spillover effect from higher potential funding costs into these three sectors given: 1) their historically high correlation between the sector credit spread and underlying sovereign credit spreads; and 2) their high absolute debt levels and thus need for regular bond refinancing.

Move to ‘safe haven’ sectors/indices: We believe the low-debt defensive sectors to switch into include Healthcare, Food & Beverages and Food Retail. On a regional basis, we would expect the national equity indices of Portugal, Italy, Ireland, Greece and Spain to underperform other European bourses owing in large part to their heavy banks weightings.

Pick your risks very careful!

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